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An Arkansas public pension fund filed a lawsuit against State Street Corporation, expanding the investigation into whether banks overcharged public pension funds by tens of millions of dollars for foreign-exchange transactions.

The suit, which was filed Thursday in federal court in Massachusetts and which seeks class-action status, alleges that Boston-based State Street for more than a decade violated state law by overcharging many customers for currency trades.

In a statement, State Street said the firm is "firmly committed to providing its clients with quality service and transparency in meeting their FX needs. We will vigorously defend the allegations made in the complaint and we stand by our business practices."

The Arkansas Teacher Retirement System oversees around $11bn in assets for more than 115,000 retired and active teachers. The suit seeks class-action status on behalf of all "similarly affected" customers of State Street, including public and private pension funds, mutual funds and endowments.

Excluded are public pension funds that have already been part of cases against the firm under whistleblower laws or have cases that will be unsealed during the course of the Arkansas litigation.

Thirty states allow whistleblowers to collect as much as 15% to 30% of government recovery in cases in which they assist. Arkansas has no such statute.

While Arkansas isn't a whistleblower state, the pension fund suing State Street is being represented by a Boston law firm -- Thornton & Naumes LLP -- which also is a law firm leading the whistleblower cases in California and Virginia.

State Street is the custody bank for more than 40% of US public pension funds, according to the Arkansas lawsuit. The suit alleges that State Street's "unfair and deceptive FX practices" have generated hundreds of millions of dollars in profits annually.

In suing State Street, the Arkansas fund joins a handful of state prosecutors that are looking into whether certain custody banks charged state pension funds the most expensive foreign-exchange price during the day when a trade took place, rather than the rate the bank paid, and when currencies were sold, paid them the lowest price of the day.

The Arkansas fund has been investigating foreign-exchange pricing since the fall of 2009, according to minutes of the fund's February 7 board meeting. Board minutes said the Arkansas fund's staff, attorneys and experts hired by the attorneys had been attempting to obtain information from State Street concerning foreign-exchange trades and costs. The minutes said "receipt of information from State Street has been delayed several times."

-- By Jeannette Neumann. Carrick Mollenkamp contributed to this article.